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Superfunds August 2015
What was once alternative is
becoming mainstream: soy milk,
yoga, tattoos and macramé are
now a regular feature of everyday Australian
urban life.
And the world of investments is no different;
alternatives are no longer alternative. Real estate,
infrastructure, hedge funds, private equity,
currency and commodities are asset classes
that are by no means strangers to institutional
portfolios.
A common way to diversify portfolios is to
include investments with returns not closely
correlated with those of the traditional asset
classes of stocks and bonds. Adding alternatives
also increases the potential to provide lower
volatility.
Globally, institutional investors already allocate
approximately 16 per cent of their exposure
to alternatives, and this proportion is growing,
according to recent surveys conducted by
BlackRock and the Economist Intelligence Unit
(EIU).
THE GLOBAL MOVE TOWARDS
ALTERNATIVES
At the end of 2014, BlackRock surveyed 169 of its
largest global institutional clients, with combined
assets representing US$8 trillion. They were
asked how they planned to change their asset
allocations over the coming year in each of the
major asset classes.
On aggregate, respondents indicated they
planned to move out of traditional fixed income
and cash and into real estate and real assets in
2015. Net allocations to equities were largely
unchanged.
Within the broad alternatives category,
real assets (for this survey this was comprised
of infrastructure, commodities, timber and
farmland) were targeted for the greatest increase
in allocations, with 61 per cent of respondents
planning to increase their weightings in 2015.
Most institutions planned to leave their
allocations to hedge funds unchanged, although
23 per cent proposed an increase and 19 per cent
planned a decrease. Only 7 per cent planned to
decrease their allocation to real estate, while 50
per cent planned to increase their exposure during
the year.
In the Asia-Pacific region, the trend was similar,
with significant increases planned in alternative
allocations, but a somewhat higher proportion
(10 per cent) favoured increasing their allocation
to equities (Asia Pacific 39 per cent versus 34 per
cent globally).
More than two thirds of European investors
Anticipated 2015 asset allocation changes (% selected)
100%
75%
50%
25%
0%
Decrease significantly (5%+)
Decrease slightly (1-5%)
Increase slightly (1-5%)
Increase significantly (5%+)
Leave unchanged
Real estate
Real assets*
Private equity
Cash
Fixed income
Equities
Hedge funds
Net change 2%
- 18%
4%
36%
42%
- 15%
60%
5%
27%
35%
31%
3%
3%
36%
40%
18%
3%
6%
13%
58%
23%
1%
10%
43%
45%
2%
7%
43%
48%
2%
1%
37%
60%
1%
3%
23%
63%
10% 1%
1%
Source: BlackRock global institutional rebalancing survey, December 2014.